More capital readily available for franchises in 2012, according to new Plante Moran study

Mar 27, 2012

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Auburn Hills, Mich., March 28, 2012 – The franchise industry is poised for growth in 2012 due to more readily available capital, according to a study from Plante Moran, PLLC.

Plante Moran, one of the nation’s largest certified public accounting and business advisory firm, has released an industry outlook report that notes:

The federal government is proposing a healthy list of programs and incentives to support business owners and entrepreneurs

Private equity investment is on the rise, with a focus on acquiring or investing in franchise concepts, multi-location franchises and multi-brand locations

The International Franchise Association is partnering with several organizations to promote VetFran, which helps veterans set up franchises

“Perhaps the franchise sector is attracting more interest because it is composed of widely diverse segments and cannot be painted with a broad brush,” said Mark Fleischer, industry group leader for Plante Moran’s franchise industry group. “Its diversity mitigates dramatic swings and aligns the industry closely to the U.S. economy and consumer trends.

“Franchise concepts that will thrive in the coming year will focus on meeting consumer expectations with quality products and exceptional service. Successful concepts will continue to look for operational efficiencies and provide solid training programs for franchisees.”

Fleischer noted that there was “pent-up demand for capital in the franchise industry” to open new locations, remodel or expand. The 2012 franchise industry outlook cited reduced restrictions from the Small Business Administration that makes securing 7(a) and 504 loans easier for franchise organizations.

Small Business Administration loans are more likely to go to franchise organizations with low default rates, encouraging franchisors to develop efficient systems and foster strong relations with franchisees.

Private equity investors are “another bright spot” for franchise funding, the report shows. According to the Private Equity Deals Database, Pitchbook, private equity firms have invested in 100 U.S. bars and restaurants since 2008. Plante Moran says this is happening because private equity investors are realizing the value in franchising opportunities and are facing greater pressures from their investors for results.

The 2012 franchise industry outlook also provides an overview of the initiative from the International Franchise Association -- in partnership with the U.S. Department of Veterans Affairs, the Veterans Corp. and the Small Business Administration ¬– to focus on VetFran, an organization that helps returning veterans acquire franchise businesses with financial incentives.

The report cited several positive economic trends that should boost the popularity of franchises, including:

Stronger corporate balance sheets

Better capitalized banks willing to lend

Consumers focused on reducing debt and saving more to build personal balance sheets

“Even with these pluses, optimistic economists are projecting another slow growth year in 2012,” Fleischer said. “We suggest businesses carefully assess their options and avoid impulsive and uncoordinated responses while nurturing flexibility in order to be prepared when opportunity knocks.”

About Plante Moran, PLLC

Plante Moran is among the nation’s largest certified public accounting and business advisory firms, providing clients with tax, audit, risk management, financial, technology, business consulting, and wealth management services. Plante Moran has a staff of more than 1,600 professionals in 21 offices throughout Michigan, Ohio, and Illinois, with international offices in Shanghai, China; Monterrey, Mexico and Mumbai, India. Plante Moran has been recognized by a number of organizations, including FORTUNE magazine, as one of the country’s best places to work.